Overdrafts Can Be Consumer Friendly

Bank of America announced last month that in June it will stop authorizing overdrafts at ATMs and for everyday debit card purchases unless a customer has a linked savings account or credit card.

While that may work for Bank of America and its customers, I believe that community banks and credit unions should continue providing their customers and members the ability to choose the overdraft service that best suits their individual financial situations. The recent amendment to Reg E reinforces the consumer's right to choose and the financial institution's responsibility to honor that choice.

Customers of community banks and members of credit unions that offer fully disclosed, consumer-oriented overdraft privilege services have always had control, choice and clarity in managing their finances. From the very beginning, Pinnacle Financial Strategies has promoted overdraft privilege as a service that protects consumers' financial standing and enables them to retain good banking relationships despite the occasional mistake or emergency.

We have advocated the value of offering overdraft privilege as good customer service rather than treating customers who overdraft as bad, incompetent, dishonest or not worthy of having a bank account. We have endorsed the idea that charging a fair and understandable fee for a service rather than gouging customers is a good business practice.

The open, transparent programs we urge our clients to offer are far different from the somewhat mysterious programs offered by many large financial institutions. Fully disclosed overdraft services have no secret limits or fees that are unclear or surprise consumers. They don't hold consumers hostage, refusing to let them opt-out of the service. They recognize the preference for using linked savings accounts, credit cards or lines of credit for those who want and can afford them. They have tolerances and limits on the number of daily fees. They respect consumers' control of their finances. They provide safeguards against excessive usage. And they offer options that help consumers get back on track and keep their credit ratings and bank accounts if they happen to overextend themselves.

In a recent article, American Banker noted, "Bank of America Corp.'s plan to block debit card purchases that would overdraw accounts highlights a paradox in the market today: giving consumers fewer choices can be seen as customer friendly." U.S. Bancorp CEO Richard Davis elegantly summed up how community banks and credit unions approach their customers and members when he said, "We are not going to tell consumers what they are supposed to do. and we're not going to tell them what they are supposed to think."

The fully disclosed, consumer-oriented overdraft programs have been and should continue to be an additional service that genuinely gives consumers informed control and choice. The Reg E opt-in requirement plainly clarifies and enhances that consumer control and choice for ATM transactions and everyday debit card purchases.